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Shell has invested $ 850-900 mn in India

Business-Standard: “Shell has invested $ 850-900 mn in India. What more can we do?”

“Most of its earlier ventures in India were unsuccessful”

Q&A: Vikram Singh Mehta

Hemangi Balse / Mumbai August 20, 2004

When Shell entered India over a decade ago, it had major investment plans. But continuous changes in the petroleum and natural gas policy have forced the corporation to follow a wait-and-watch attitude.

Most of its earlier ventures in India were unsuccessful — LPG marketing, lubes marketing and forays into exploration. Today, it is close to completing its biggest investments in India — a 2.5-million tonne LNG terminal at Hazira in Gujarat.

Over the next few months, Shell will also start setting up petrol pumps. In a interview with Business Standard, Vikram Singh Mehta, chairman of the Shell group in India, talks about Shell’s plans in India and how he sees the Indian oil industry shaping up. Excepts:

What is the status of your LNG project?

The upstream LNG project will be completed sometime in the fourth quarter of this year. We have invested Rs 2,500 crore and we should start commercial gas in early 2005.

We have signed several memoranda of understanding [MoUs] with potential customers and we are confident that these will be converted into general sales agreements as and when we are closer to the date of commissioning of the project.

There is lot of demand for gas in this country, partly because there is an insufficient supply of domestic gas and partly because the alternative to gas is costly and the economic advantages of substituting liquid fuel — naphtha, LPG and coke — with gas are significant to customers.

Have you signed up any major power plants — like Torrent?

I can’t disclose those details. But there are many customers — both large and small.

Many LNG-importing companies are now looking at entry into value-added sectors such as setting up power plants. We, however, are not getting into power plants.

Besides Hazira, is there any other location where you plan to set up LNG plants?

We don’t have any plans to build another LNG terminal. We will expand our existing terminal to its maximum sustainable capacity and, hopefully, find a market for gas in and around the geographic lines of Hazira.

It could be anywhere — south, Maharashtra, Gujarat, Rajasthan or Delhi. Our intention is to have a sizeable market share.

Do you anticipate severe competition and price cutting?

Gas prices are hardening everywhere. It is a question of demand versus supply.

Today, there are a large number of customers who want gas but are unable to get it. Instead of gas, they go for high-priced naphtha.

What is the capital structure of the three companies that are involved in Hazira — Shell Hazira Gas, Hazira LNG and Hazira Port? You had signed an MoU with French oil company Total to sell a 26 per cent stake in these companies. What is the status of the MoU now?

Currently, we own 100 per cent in all three companies and are awaiting approval from the government.

There were reports of Hindustan Petroleum Corporation Ltd (HPCL) picking up equity in the terminal….

There is no such thing. We are always looking for partners who can add value and those companies that can will come into the project.

What will be the exact structure of the company? Will Shell move out once the terminal is ready and will other companies acquire equity in the project?

No, we will run the project.

What about bringing in partners for the port terminal?

Right now, there are several rumours and talks that cannot be substantiated with facts. We are the LNG operator.

Our core competence is LNG and we have a commitment to the government to build a solid cargo facility — which we are going to build.

We would like to bring in a partner or partners who have experience and competence in running the solid cargo facility. Currently, we are in the process of considering that option.

We understand that Singapore and Dubai port terminals have shown interest in the port terminal facilities.

No. Look at the names of the companies that have interest in these kind of activities and you will find several names coming up all the time. In any business — for instance, the disinvestment of HPCL — there will be five or six companies whose names immediately come up whether or not they have shown interest in the project….

We will want to bring in a competent company for the development of the solid cargo facilities. Our investment in the LNG terminal alone is over Rs 2,000 crore.

There will be additional investment of anywhere above Rs 1,000 crore for the development of the solid cargo facility.

We have not run ports before. A company that knows how to run a port and focus on solid cargo can do a better job than us.

Shell has developed the liquid cargo port so far. What has yet to be developed is the solid cargo.

Hazira Port Pvt Ltd owns the entire port. So, we need to find a corporate structure by which Shell runs and owns the liquid cargo terminal and somebody else runs and owns the solid cargo terminal.

What is the status of your retail outlets?

We are on track. The retail outlets will come up by the end of this year.

What kind of investments have you earmarked for the retail outlets business?

In the first phase, we are investing Rs 250 crore. I cannot give the number of outlets.

Anyway, this is not going to be a numbers game; it’s a quality game. The differentiation will primarily be based on customer pull and brand preference.

Are you planning to launch outlets across the country simultaneously?

No, in the first phase the outlets will be regional and geographically-focused.

We have certain obligations to set up certain percentages in remote areas and we will meet that obligation. We will build the national network at the second stage.

Talking about a regional focus, do you plan to set up outlets in any particular state?

We are still reviewing the issue. We have set up an office in Bangalore.

What happens to Shell’s LPG business?

We are not planning to grow the LPG business.

Will you sell your LPG business?

No, we will continue to do whatever we have been doing.

In case of LPG, you bought out Bharat Petroleum. You also have the Bharat Shell venture in lubricants that sells only Shell products. Any plans to buy out BPCL’s equity in the lube business?

There are many assumptions and suppositions. Today, the company is run like a Shell company, managed by it. The venture is working smoothly and it is an important thing to be kept in mind.

There are no partnership issues here. The other issue is: why would BPCL sell?

If they do not want to sell, the question of buying them out does not arise. However, if they wish to sell, it’s another matter altogether.

Would you sell other lubricant brands at your outlets?

No. Let me categorically say that I don’t see why we would sell someone else’s product when we have our own product.

Are you getting into auto-care products?

That might start in a very small way.

You were expecting bitumen to be a big business. What is the status? We have decided on one location — Gujarat. We are yet to decided on other locations. It’s an exciting business but we will grow it slowly.

How much investment is Shell looking at making in India?

In 1994, Shell had nobody here. I was its first employee.

Ten years later, Shell now has nine companies — Bharat Shell, Shell India Gas (LPG), Shell Solar, Shell Bitumen India, Shell Marketing India (for retail outlets), Shell Hazira (which includes three companies Gas, LNG and Port), and Shell India Private Ltd which is into trading, technology and new businesses.

We have invested $ 850 million to $ 900 million. What more can we do?

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